Guest Post: A Gold Standard: Easier Said Than Done

If you haven’t heard yet, the committee which is drafting the platform for next week’s US Republican National Convention has announced that they are including a proposal to return to the gold standard. Big news.

Ironic… given that it was a Republican president (Richard Nixon) who abolished the gold standard in the 1970s. Regardless, it’s nice to see the issue thrust into the spotlight. But does it stand a chance of actually becoming a reality?

Let’s look at some numbers.

Remember, a gold standard is a monetary system in which individual currency units are fixed to an amount of gold held by the government; under a gold standard, the paper money supply cannot be expanded without also increasing the amount of gold on hand.

With a full gold standard, 100% of the money supply is backed by gold. In practice, a smaller amount of gold may be fixed to back the money supply.

According to the World Gold Council, all the gold that has ever been mined in the world is now valued at roughly $10 trillion. This is essentially the same number as the current M2 money supply in the United States.

In other words, to fully back its existing money supply, the US government would have to control every ounce of gold that has ever been mined in the history of the world.

At present, the market value of the federal government’s gold holdings only amounts to about $250 billion. Now, I’m making a big assumption that Uncle Sam is accurately reporting his gold holdings. But we shouldn’t worry much about this, US gold holdings are going to be audited soon. By the Treasury Department. How impartial.

Anyhow, this $250 billion worth of gold bullion constitutes a mere 2.5% of US money supply. So advocating a return to the gold standard is much easier said than done.

Even under a flimsy, partial gold standard, the amount of gold backing the currency would certainly need to be north of 2.5%. Even if just 10%, this would suggest either:

Clearly one of the key risks in this scenario is that the US government would need to acquire as much gold as they can get their hands on, likely through Roosewellian-style gold confiscation.

Let’s be honest, though. This talk of a return to the gold standard is probably just a pipe dream. The numbers don’t make sense. Besides, why would any politician want to be constrained from conjuring money out of thin air?

But just in case the idea gains momentum, it may be worth a speculation.

One could, for example, buy some options on long-dated futures; the call option to buy gold at $2,350 in December 2017 costs around $225 right now. Assuming that silver also rockets in price, one could pay ~$2 for an option to buy an ounce of silver in December 2016 with a strike price of $80.

If a return to the gold standard drives precious metals prices through the roof over the next five years, those options could be worth 20x what you pay today. If it ends up being nothing, your exposure is limited.

Naturally, there are a number of risks associated with making such speculations in public markets… not the least of which is the counterparty risk associated with the exchange itself.

I’ve long written that public markets are completely broken. Exchanges are just government lap dogs who make a sport of supporting fraud and fleecing the little guy.

If you have the means, you can reduce this risk by investing through foreign exchanges. Hong Kong’s exchange currently has a cash-settled gold futures contract (100 troy ounces of 995 gold priced in USD) and will eventually introduce options. Other global exchanges (Shanghai, Singapore, etc.) also transact gold futures.

Of course, nothing beats owning physical metal, preferably stored overseas. If Roosewellian-style gold confiscation becomes reality once again, the safest place for your gold is going to be a snug safety deposit box in a place like Hong Kong or Singapore.

The simplest solution is the elimination of legal tender laws. Let the people/market decide what is money and what it's value is. Then let people pay taxes in fiat. This will work itself out in no time at all...

There's no way they can come up with any sort of gold backing anyone would take seriously.

How much gold do you need to "back" a $50 trillion money supply?

$50 trillion? Yes. $40 trillion of it is "off balance sheet".

But implement any sort of gold backing for a $10 trillion money supply, and the whole $50 trillion comes flooding back to the Fed, people wanting gold, and the truth comes out, it's really $50 trillon.

My guess is they've already siphoned an incredible amount of it via the cash for gold meme... I can't fathom granny has any gold left after all the progeny have sold it for pennies on the dollar over the years... the rest of middle america is just trying to scrape by with gold largely already being cost prohibitive, despite availability of fractional ounces.

When CONFIDENCE in any piece of paper or promise goes to zero, then all you have left is hard assets. The confidence in the paper is going down the tubes with every non-prosecution, as that is the confidence in law.

The hidden soup-lines (food voucher system) is filled with people who are watching the inflationary policies with rapt attention. Every week the see less and less of the promise of government to care.

There is a tipping point at which beer, bread, milk, gas, electricity or water will not be delivered. At least not for another piece of paper.

When the price of toilet paper costs more than the Federal Reserve Note per wipe, you will know.

Hasn't it occurred to anyone that you can still do fractional reserve, and count on the fact that never will everyone turn in 100% (or even much over a few percent) of their fiat to get gold from the government?

They can screw this up just like they do current FRNs, it's just as easy.

And remember, most money isn't even paper, it's bits. Probably couldn't turn that in for gold anyway, the bits don't have "gold certificate" stamped on them.

It may very well happen (how soon, who knows) ? It would not come about because of 'party platforms' spouted by politicians. Does anybody pay attention to what they say now ? Romney who said he wouldnt go along with an audit of the Fed, will now support a gold standard ? People are really that naive to believe these demorepublicrat liars & theives ?

A gold standard might come about as a result of the markets, if there was a complete loss of faith in the dollar. Sovereign nations are buying gold now for a reason. China may back the yuan with gold someday.

But, of course the pricing of dollars in terms of gold would have to be adjusted. When something is made near valueless, how much is it worth in terms of something in demand that people value highly (for thousands of years) ? The author still seems to think in dollar terms to some degree.

Your post made me think about something that is connected indirectly. You said, "It would not come about because of 'party platforms' spouted by politicians. ...Romney who said he wouldn't go along with an audit of the Fed, will now support a gold standard?" What if this is a political gambit to gain the libertarian/Ron Paul voter? As you noted this is a change for Romney and one wouldn't think he would be saying this given his head financial advisor and/or his past behavior/statements. I am beginning to wonder if he might have a big speech about this at the convention in an attempt to pull the libertarian/Ron Paul voters to vote for him. These people won't vote for him, but I'm betting he is going to make a play for their votes via this subject anyway.

My father told me this morning about a Drudge article stating Repubs. are thinking about returning to the gold standard (though I had already read the ZH article about truth/red herring). I told him the same thing you are thinking now. It's an attempt to reach out to the Ron Paul voters. Romney's/Obama's backers don't want a gold standard, therefore one will not come until it is forced upon them. I'm still writing in Ron Paul

How about they keep boosting inflationary pressures into the real economy and keep wages stagnant? This way as people go broke they slowly have to cough up their precious metals and other valuables like what is happening in Portugal? I guess the key is to hang on for as long as you can.

"How about they keep boosting inflationary pressures into the real economy and keep wages stagnant? This way as people go broke they slowly have to cough up their precious metals and other valuables like what is happening in Portugal? I guess the key is to hang on for as long as you can."

Ding Ding Ding. Winner.

This is, and has always been the "bankers" plan.

What do you think Bilderberg discussions/meetings are all about?Why are heads of corporations invited?

To make sure they are all on the same page. Banality of evil situation right there.

Best defense against this is the barter system. There is a barter system just about anywhere. Craigslist tends to be the best way to connect and people are already bartering labor for goods. I truly believe that the bankers have screwed themselves to a certain degree. Their criminality is soooo apparent right now that before people give up anything of major value, I truly think they will hit the barter system first. The sheeple may be lazy regarding changing the system, but I know many who do stuff just to poke TPTB in the eye.

To be fair, he mentioned speculating by buying futures "options" which he perceived as having minimum downside risk (you could lose only the premium you paid) and large upside potential (underlying futures price supesedes your call option strike price) putting the buyer "in the money".

I said this exact same thing yesterday on ZH the moment I heard there was talk of a gold-standard.

It's not likely to happen (nobody in TPTB really want it) but if it did it would NOT be a good thing for anyone holding physical gold. The UST is on record as still holding gold at $42 Troy ounce, and now you can see why they never bothered changing that. That is what they are going to pay when you step up to "sell" (that is surrender) your gold.

The only reason they would do this is to shore up the TBTF banks with hard collateral. And I wouldn't put it past them.

You're gonna trust the current leadership (who got us into this mess) with gold? Hah!

IF, they do try a gold standard it will be something like this...

They'll take it for $42. Then when they have it all, they'll create the new ratio at $5000 and it'll be increased every year. So basically, it will be a big rip-off that isn't even a true standard. Just more Orwellian Newspeak.

how does that pass muster under the constitutional requirement that fair market value be offered for any government taking? seems like something a simple jury trial could fix... the fact that it keeps the value of its assets on its books at a price less than their fair market value has nothing to do with the value of the gold...

Roosevelt, the fascist, paid out at 22$ an ounce and then immediately "revalued" the gold at 32$ an ounce. Assuring a huge profit for all the bankers that held gold internationally- especially our good masters- Britain. The law is the state and the state interprets the law- just ask Dred Scott or any of the other abortions we call SCOTUS rulings.

Seems that any dumb article @ ZH is from 'Sovereign Man' whoever that is. Better to have Ronald McDonald to write articles, Tyler.

So dumb and in so many ways it's hard to start. First of all, the GOP has no desire for hard currency. Ron Paul likes it ... see the curb where he was kicked, the bus he was thrown under.

W/ $55 trillions in US public/private debt any hard currency would cause instant default OR banking collapse. The only way to install an official hard-currency regime is for the government to offer greenbacks, not borrow ... oops, there go the banks! (To the same curb/bus as Ron Paul.)

We have an unofficial hard currency regime right now as money is priced in crude oil by the public at the gas pump. Problems with it include the ongoing deflationary bankruptcies of Europe, Japan and China. Be careful of what you wish for!

Hard currencies are useful for artisan-craft workshop economies where firms need to borrow infrequently or not at all. Currency arbitrage is a killer w/ gold standards, it did in specie prior to 1934 and killed Bretton-Woods/Treasury gold window.

Gold and computer trading don't mix. When the 17th-19th centuries re-appear after current system breaks down (soon) then we can talk gold ... if any of us are left alive, that is.

yes akak, agree fully, but the fact that romney is doing this leads me to believe ron paul is working on some arrangement with romney behind the scenes..romney wouldnt be doing this if there wasnt some pending quasi endorsement by paul....and that is what scares me............rand has already gone to the dark side, i certainly hope ron isnt slipping into bed with them.............

OK - now we have money printed by all and sundry and worth - well at least the paper it's printed on.

The world has a finite amount of Gold - there are 7 billion of us (give or take a few in Alabama that couldn't read the census form) in 100 years there will be 14 billion people and there still be the same amount of gold - SO - obviously, politicans will have to "decide" when and by how much to devalue the "currency" as the population increases. SO - it's really just a useless yellow metal being manipulated by "enlightened" politicans instead of a useless pretty green piece of paper.

Tulips centuries ago in Holland and Gold today - humans and their foibles.

Afaik Ron Paul's books are the most rational argument for a presidential candidate ever presented. In End The Fed He presents a gold standard as a mechanism to control fraudulent currency manipulation. He doesn't fixate on gold, as he is interested in a lasting solution, not the mechanism. Austrians propose using multiple imperishable resources as the basis for wealth reserve value: gold, silver, platinum, copper, diamonds, oil, etc. to keep control of money policy out of the hands of a few well organized criminals. Looking through my best friend's coin collection, I see that the British & the founders were on the same page.

I don't know if anyone noticed, but gold price sell-offs in aggregate conjure up money 'out of thin air.' Selling something into the market which you first do not own and buying it back at a lower price is the way markets work.

It shouldn't be very far fetched, though, that bullion markets take up the role of money markets in the absence of a functioning exchange due to negative nominal rates. Not that something like that will conjure up money, but can soak up an indefinite amount of liquidity under the circumstances.

And the gold price can fluctuate to meet demand without any need to fix the price, but mostly people will be priced out of markets, or very few will be left holding any bullion.

Instead of pegging the dollar to gold, they will peg the price of gold to the dollar.

In other words, the price of gold will be fixed, say $1600 or $1700 per ounce and then that will be that. It won't be allowed to go up or down. The GLD, IAU and other perhaps new manipulation schemes will be used to force this price for gold. It will be mandated by law. The price of gold will never change again.

Then, as inflation continues and the value of the dollar continues to fall, so will gold.

Even though the price of gold was fixed to $35/oz. in 1935, gold miners continued to aggressively market their bullion product and the price rose to $41.32/oz. temporarily. Black market prices are very temporary and will not move the bullion markets, especially if the bullion price is openly traded in volume as they are now.

If the price fix of gold is inadequate in times of high monetary inflation, you can get a massive deflation.

Legal tender laws keep the paper buck from going all the way to zero. They can be revised to prohibit, i.e. make it unlawful, for gold to be used as currency. That, of course, won't stop gold from being used as money, but it will discourage it if your home is being sold on the courthouse steps for Fix It Again Tonys.

i just bought my shorts.....70% percent off end of summer clearance sale.....always better to buy shorts at the end of the summer when the latest fall fashions adorn the store windows.........and no, bernanke hasnt touched my shorts............

The repukelicans are starting to get it now but way too late. They are proposing this only in hopes of swaying the Ron Paul supporters because they have finally realized they need this group to beat obunghole.

My mom said the other day she is voting for obunghole mainly because he is a nice person. My head about fucking exploded. The repukelicans made the wrong choice. They should have chosen Ron Paul. He was the only candidate that had an opposing platform than all the other candidates.

When Ron Paul was at a past debate in the Carolinas earlier this year he mentioned the Golden Rule and how we should treat others, in this instance he was speaking of other countries, as we would like to be treated.

Paul got booed for saying this. I wonder if the repukelicans had picked Paul instead of romnoid would my mom vote for Paul because he is a nice man? Remember the golden rule. Treat people like you want to be treated. I believe that Paul lives his life under this philosiphy. I know obunghole doesn't in fact I worry obunghole may send a drone right thru my living room window one day.

Repukelicans stepped on their dick big time and now they don't know what to do. The next four years are going to get crazy. Good luck to everyone

I am a Ron Paul supporter and will absolutely not fall for this repukelican trick. I'm writing in Ron Paul. As far as I am concerned we might as well get the communist Obozo so everyone can see what it is they have been supporting and we can revolt and move on.

Fucking idiot doesn't know what he's talking about and clearly doesn't understand how or why and what it takes to make a classical gold standard operate successfully. I'd post it, but Tyler won't print it. Tell you what, I'll post it on my blog at www.electanewcongress.com by next week sometime. I'm getting tired of people lampooning a CLASSICAL GOLD STANDARD when they don't even know the difference between a classical, phony, or replacement oil standard like we have today. Everyone keeps calling it a fractal system (which it is), but its central currency status is as an oil/dollar standard. It's not that hard to understand once you can grasp the basic fundementals. It just appears as an abstract because we've been living in a tyrannically based political and economic system for so long it is hard to conceive something else.

the usa may or may not return to a gold coin standard. regardless, i'll continue my own personal gold standard, or more accurately, bimetallic standard.

referencing the article, i think all parties involved acknowledge that the gold coin standard becomes viable with gold above $8000 per ounce. so to repeat the point yet again, it's price that will bring back the gold standard, not the ounces of gold held by the treasury at current (8000 tons) levels.

lets say that the gold maestros are correct and the dollar collapses to 1/5000th an ounce of gold. from 1/5000 to 1/8000 is "only" 60% which is about what apple seems to move each year.

i can see it happening.

btw: how many would have thought a decade ago the usa would be at war in afghanistan for 10 years? or that we would run deficits north of a trillion for four straight years? etc etc ... this is not your mother's america anymore. anything can happen. every day is a jump ball for the future of the country. reminds me of all the books i've read on pre-revolutionary russia with all the plots and counterplots.

they arent going to confiscate gold, they are going to confiscate the 6 trillion in 401k accounts and convert them to government savings accounts with treasury ious.............gold was confiscated by roosevelt because it was linked to the currency.....now the government only cares about the currency itself...........they have no interest in going after gold, it wont help them out of this pickle.................so they will tap the 401ks....the idea has already been floated for the past several years....

now what do you think will happen when the world stops lending to the u.s. and the government needs much more than what is in the federal pension system has? worry about your 401k, not your gold...............

Kito sometimes me and Doc Engali talk about things other than your turkey sandwich. He was talking about variable annuities last night. One of the things about them is most of them don't even have money market funds anymore they just have bond funds. Bill Gross set himself up nicely.

that turkey sandwich has alot more substance than any bond annuity could ever have............the entire economy isnt built on a house of cards....its just based on virtual reality.............social security, pension funds, bond funds, credit derivatives......once people remove their virtual reality apparatuses, its going to get ugly.........

"If Roosewellian-style gold confiscation becomes reality once again, the safest place for your gold is going to be a snug safety deposit box in a place like Hong Kong or Singapore."

Just as long as they won't need the military protection of Uncle Sam. Look at Switzerland, where banks are selling out their employees names, and banks' employees are selling out clients' names in return to the tax agencies of various countries. The moment a similar 'treaty' is enforcednegotiated with Singapore, the same moment the gold will be in the hands of the wider Goldman Sachs gang.

Regarding geopolitical events, the only safe place for the time being might be in Moscow and Tehran.

I join you in your last remark; from the comfort of the presidential car on the Nepal express railway transiting from my diamond junket in Mongolia to my Hong Kong excursion to research vintage Merlot production faclities. These trips are such a toil on my persona, however, in order to facilitate a robust description compatible with Mr. Black, I carry on.

Nixon did not "abolish" the gold cover clause. Nixon, by executive order, set the gold cover clause to zero percent. Any president by executive order can readjust the gold cover clause to any percentage up to one-hundred percent.

Going back to a gold standard would be easy and a huge boon to everyone except people who have access to a printing press. And franly, I could not care less if JP Morgan suddenly had to turn a profit doing business to survive instead of getting printed money. Price gold at 20k and ounce instead of 10k and suddenly you have all kinds of extra money and government credit to play with anyway.

And really, it doesn't matter what the government chooses to do. It is going to happen anyway. it always does. Gold will rise until it backs the paper on its own because the market demands our debt be backed by a financial asset. Standing in the way of that will destroy anyone who attempts it.

A higher gold price remains the easiest way to kick the can. Bankers are just rooted in some form of insanity that does not allow them to conduct themselves as if the same old easy fix that has always worked is an option. They want to keep tinkering because they are sure they will figure out this problem with some "new math". When an 8 year old with common sense and a non-scientific calculator can do your job better than you, your profession is worthless.

All that has to happen is banks use gold as collateral. That's it. Counterparties will demand that gold be posted to extend credit.

The price of gold may go up in short-term, but it could come right back down after it's re-introduction as a leveraging instrument if the system overall begins to deleverage.

This analysis of looking at the current money supply totals and trying to divide it out by the amount of gold in the world is fundamentally flawed. An almost instant deleveraging would begin and the trillions of dollars would be wiped off books. No one can really know either what the numerator would be or what the denominator of gold pledged would be.

Gold is money, the unit is it's weight and fineness, governments are not needed, no gold standard, freedom is the absence of dictat, they are free to compete with their coinage but no monopoly no restrictions, gold is stand alone money and doesn't need government assistance, leave us alone and get out of the way, no studies, no committees, nothing, it's complete by itself in the eyes of those who use it, it's already international money, no UN, no FRB, no IMF, it's a fact .... governments can compete with their fiat or even gold backed curriencies .... but no conditions, no advantages, no borders, no restriction on movement, nada, nothing, no way, no how .... fuck it !

romney of bain capital to confiscate the
private gold holdings of the citizens
of the united states, a mormon, son of a governor.
that would be hilarious. if i had
any money i would pay to see it.
hilarious. the gut and glut raider/politician
from Utah or Massachusetts or Detroit
or Romulus, whatever. if he confiscates the
gold for his turbo, warp boosters and even
one gold holder complies i swear i will laugh
untill i actually choke to death.
speaking of choking to death we have the romulan
vs the kenyan in november. both of them worshiping
at the milken school of financial junk for financial
junkies and bonds dealers and traders in limbo.
hilarious.
then he can make crazy eddy and michael milken
his treasury secretary and attorney general and
ship all the gold to the middle east, give it
to dov.
then collapse the dollar and sell the Rockies
to some funny talkin' man from uzbekistan.
.
american national politics, hilarious. here is the
platform. we will take all your money and destroy
your credit and give it all to the fatest thieves
and the crookedest criminals we can find on wall
street, london, washington d.c. and the middle east. how
about that, now vote for me. we're bringing back
the dust bowl good ol' boys.
.
good ol' boy (getting tough).wmvhttp://www.youtube.com/watch?v=vM17rWh4LKo
.
america loved bonnie and clyde so much that it
put them in charge of banking regulation and
made their crew the bankers themselves. that
bit about them being shot up was a hoax and a
plot to make the americans think there is justice
within these borders. they live.
this is gruesome ... don't watch if you please
Bonnie & Clyde ambush aftermath death car film combo (HQ)http://www.youtube.com/watch?v=4I2LUS0KJso

Enough with the gold standard, what does it even mean? That governments wont warmonger, rape and buy votes because their potential to stir up shit is diminished by borrowing denominated in the barbarous relic? As best as I can politely put it, people would be lacking situational awareness if they believed that borrowing lumps of metal is any different from borrowing lumps of paper. If ia gold standard ever does happen, it’ll be just another temporary placebo for the public, an illusory austerity until the next round of madness kicks off. And all this generation would be doing is making hay for the next generations at the drastic expense of themselves. Going through decades of austerity just so that the people 3 generations down the line can forget about our history and inevitably spunk it all away again, in their own bout of collective gibberish.

If that’s not bullshit I don’t know what is. Trying to get the house in order for organisms that don’t even exist yet? It’s a philosophical conundrum, not a monetary problem. If you believe that organisms floating in the infinity of space owe a living to organisms not yet here…well, each to his own. It all comes down to the classic fork in the road; reason or divinity.

So.. you would choose to NOT move towars reality. See, when you push fake shit for soooo long, the return to reality becomes even harder. There's no way we could sutain a gold standard without war. It's all been fake, every bit of it. The problem was the "we" accepted the charade and we kept on saying it will be ok unti it's not. Well now it's too fucking late to go back and the only way out is a giant fucking Jubilee with some small wars or no Jubilee and one giant fucking war to end all wars (where have I heard that before?). Either way, there's no way out without war in some part of this world on some significant scale.

Good luck to all my fellow humans who aren't blinded by the magic show. I'll see you at the end of the tunnel.

Your sarcasm is thick. Thank you falling into the propganda like a fucking lemming. You, like many others, mis-construe support for person who is significantly more qualified to operate a presidency that would have us thrive on freedom for some sick, twisted, cult like fantasy where Ron saves the world from an extinction level event.

In the future, don't be so gullible, it just makes you look like a fool.

What makes you think there will be a choice? The value of the dollar is based solely on trust. What happens when all the trust is gone? The world's paper currencies are being simultaneously trashed. The Banksters will continue to screw us until we rebel. We will refuse to accept a SDR or an Amero to replace the dollar.

Will any of this be easy? No, people will starve. Riots and wars will break out. But, do you prefer to continue being conveniently fleeced by the Banksters?

Is there enough Gold and Silver to go around? Sure, at some price. There is about twice as much gold as there was when we were last on a gold standard before 1914. (170,000 tons)

The kind of gold standard we have matters. For most of her existence, America had in circulation a Silver Dollar coin which was a little smaller than the Spanish Reale. Gold was used to balance foreign exchange. This kept a nation’s banks from inflating their money supply too much before gold would flee the country. When the gold fled, then runs on banks would occur. Enough wealth of the Banksters and foolish depositors would be lost to rebalance the economy.

The Genoa Conference of 1922 established the Gold Exchange Standard where paper US Dollars and bonds were considered ”as good as gold” for reserve requirements. This, plus regulations, prevented gold from fleeing a country as the money supply increased. The present regime will end when the dollar stops being the world’s reserve currency or the dollar become worthless in a hyperinflation. Neither case will be easy.